ECB notes environmental credentials of Proof-of-Stake cryptocurrencies

Experts at the European Central Bank (ECB) criticised cryptocurrencies based on the Proof-of-Work (PoW) algorithm. In their view, projects using Proof-of-Stake (PoS) are among the few viable paths for the sustainable development of digital assets.

The ECB stressed that in 2021 the average electricity consumption by Bitcoin and Ethereum networks exceeded the 2020 figures for Austria, the Netherlands and Spain, as well as the installed capacity of the world’s largest gravity-dam hydroelectric facility, the Three Gorges Dam.

“The carbon footprint estimates for Bitcoin and Ethereum also indicate that the aggregate annual network emissions as of May 2022 negate the progress and planned reductions in greenhouse gases for most euro-area countries,” the report says.

Analysts argue that Bitcoin offers a ‘dubious’ benefit to society, though the blockchain technology itself holds considerable upside. The ECB emphasised that a possible solution is to incentivise PoS-based projects by governments.

Experts explained that the Proof-of-Stake algorithm uses digital assets (staking) as a resource, rather than computational power. This means such networks consume far less electricity.

“It is hard to imagine authorities banning internal-combustion-engine cars during a transition period, yet turning a blind eye to assets like Bitcoin built on PoW […]. Continuing the car analogy, governments have a choice—either incentivise the crypto-version of an electric vehicle (PoS and variants) or restrict/ban fossil-fuel-powered transport (PoW),” the analysts wrote.

In recent years policymakers and the public have been actively discussing miners’ environmental impact.

In April 2022, officials called on the Environmental Protection Agency to examine the mining industry for environmental risks. They also noted the ‘less energy-intensive’ Proof-of-Stake technology.

In June 2022 the Bank of Sweden called for banning Bitcoin on ecological grounds. Earlier, other regulators in the country proposed similar measures.

In June 2022 the New York State Senate approved a two-year moratorium on mining cryptocurrencies powered by electricity generated from carbon-based sources.

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